June 4, 2025
Stablecoins and the future of dollar-based payments
We believe in the strength of the U.S. dollar, the resilience of the U.S. financial system and the role of regulated innovation in advancing global finance. The tokenization of dollars and other financial instruments presents a compelling opportunity to enhance the utility and global reach of the U.S. dollar.
Stablecoins represent a practical application of blockchain technology that could modernize international payments and financial infrastructure. While today’s use cases are often limited to niche or high-risk scenarios, we see meaningful long-term value in compliant, transparent and enterprise-grade applications. As regulation catches up, the institutions best positioned to lead this next phase could excel at risk management, compliance and infrastructure.
Why stablecoins matter
Stablecoins allow for dollar-denominated transactions to take place on programmable, global, 24/7 financial rails. They hold the potential to:
- Improve the speed and reliability of cross-border payments
- Reduce costs by minimizing intermediaries
- Extend access to U.S. dollar-based systems in underbanked markets
- Support emerging payment models through programmable finance
We view stablecoins as a tool to augment, not replace, the current financial system. Their potential lies in extending the influence of the U.S. dollar globally while enabling more streamlined transactions.
Where QED sees opportunities
We believe the core primitives of stablecoins can be broken into six categories. As the ecosystem develops, we expect to see companies supporting several, if not all, of these capabilities.
- Blockchain infrastructure: Distributed ledgers offer a credible alternative to traditional settlement systems. Their strength lies in their ability to support real-time, auditable and trustless settlement between parties. We are particularly interested in networks that emphasize speed, cost efficiency and security over speculation.
Definitionally, these businesses have network effects so disrupting incumbents (Etherium, TRON, and Solana) could prove challenging but there is always room for purpose built ledgers that balance speed, cost, and resiliency. 1Money and Plasma are two exciting businesses building dedicated Stablecoin L1s.
- Custody and wallets: Ultimately, stablecoin assets must be held somewhere. We believe financial institutions could custody stablecoin assets on behalf of their customers in most use cases. With this in mind, we favor wallet providers that prioritize enterprise grade recoverability, security and compliance.
Privy, Utila and Dfns are leveraging novel security technologies to build next generation wallet infrastructure.
- Liquidity providers: One of the biggest frictions in the stablecoin ecosystem today is converting on- and off-chain assets, especially across emerging markets. Today, crypto exchanges are the primary providers of liquidity. For stablecoins to realize their potential, we may need to see a surge in liquidity to facilitate liquidity across onramp (USD to USDC), on-chain (USDC to MXNB) and offramp (MXNB to MXN). Over time, banks could play an important role in providing liquidity.
YellowCard, XFX, and StableSea are all building really interesting technologies that should make it easier for those with large balance sheets to engage.
- Issuers: Stablecoin issuers function similarly to narrow banks—issuing dollar-backed tokens and holding reserves in liquid, low-risk assets. However, transparency and risk appetite varies widely.
Tether (USDT), Circle (USDT), PayPal (PYUSD) and others are building in this space. Given money has network effects, the incumbents have proven to be very sticky.
- Orchestration platforms: These are the connective tissue of the ecosystem—providing risk management, compliance, licensing and transactional routing between issuers, custodians and liquidity providers.
We view this layer as essential for scaling institutional adoption. HiFi, Walapay, Conduit, BVNK, Beam, CoinFlow, TransFi, HiGlobe, Mesta and others are companies we have been impressed by in this space. At their core, these businesses are in the business of managing risk. We are excited about those whose core competencies are risk and compliance management.
- Applications: The interface consumers and businesses use to interact with their money. We are quite excited about the application layer - as we have seen across fintech applications, owning the customer is invaluable.
On the business side, we have invested in Cedar and Caliza. On the consumer side, we have invested in Felix Pago and Bitso. There are many others across the globe that we are excited about.
A note on issuers: The foundation of trust
Managing credit, liquidity and duration risk are the core competencies of stablecoin issuers. Ideally, stablecoin issuers function similarly to narrow banks—issuing dollar-backed tokens and holding reserves in liquid, low-risk assets, without any duration risk. However, some issuers take on more credit and duration risk than others. We believe issuers should:
- Operate full-reserve models with clear redemption mechanisms, including holding assets in segregated bankruptcy remote accounts.
- Undergo regular audits (including stress tests).
- Maintain rigorous risk and compliance standards.
- Commit to transparent and regular reporting.
The entry of government-backed digital currencies (CBDCs) may pressure private stablecoin issuers. Until then, trusted issuers play a crucial role in maintaining dollar liquidity in blockchain native environments.
Disciplined approach: Where we are cautious
- Token speculation: We are not focused on investing in speculative tokens or projects where returns are driven primarily by short-duration trading cycles.
- Standalone crypto applications: We remain cautious of businesses whose only differentiator is support for crypto. As digital dollars become more integrated into mainstream tools, the standalone value proposition of crypto-native applications could diminish.
Today’s major use case: Cross-border payments
International money movement remains costly, slow and fragmented. We believe stablecoins can address these inefficiencies:
- Cost efficiency: Reduce reliance on multi-bank correspondent networks.
- Speed: Enable near-instant non-recourse settlement.
- Programmability: Support smart contract-based use cases like escrow and recurring payments.
That said, stablecoins are not yet universally cheaper or faster. Today, we see adoption in areas with the following characteristics:
- Exotic currency pairs with shallow liquidity
- Crypto-native senders/receivers
- Transactions where finality and speed is paramount
- Users who wish to stay in USD-denominated assets due to local currency risk
Conclusion
The next chapter of stablecoin adoption could be shaped by institutions that understand compliance, control and customer trust. We believe that stablecoins can strengthen U.S. financial leadership by increasing the utility and reach of the dollar.
We believe the investment opportunities lie in the infrastructure—where financial services, payments and global commerce converge.